Dollar Yen Rises as Fear Recedes
August 20, 2007 – 10:53 amThe Nikkei took its cue from the strong Friday finish of the DJIA rising more than 450 points as a sense of stability returned to the financial markets. After initially trading down at the Asia open USDJPY rebounded for the rest of the night rising as high as 115.50 when bargain hunters poured back into the carry trade on the assumption that the worst of market turbulence was over.
That however may be a big assumption to make. Volatility is likely to remain high in the currency market this week as traders try to grapple with the implications of last week’s events. The battle now is between those market participants who believe that that the current crisis is simply a problem of illiquidity versus those who think that the markets may be facing the much greater danger of insolvency. If the bulls are correct then Fed actions on Friday may have been enough to calm the markets and the aftereffect of last week’s turmoil should not have much of a negative effect on the real economy. However, if the bears are correct and the current credit crunch leads to widespread bankruptcies and an economic slowdown the fallout from last week will have lasting consequences…
Source: Daily Fx
